Medical Providers Make You Look Sicker on Paper to Increase Profits

Anyone who has ever reviewed, inquired about or disputed an itemized medical charge has been introduced to the arcane world of bill coding. Every procedure, from the administration of an aspirin in the hospital, the use of a surgical sponge or the blood draw for a lab test, is assigned a code number.

As reported by Merrill Goozner earlier this month, the manipulation of codes can significantly boost a provider’s fees through “upcoding,” or inflating the seriousness of a medical condition in order to generate more tests. And more fees for them.

The codes, as explained in a recent story in the New York Times, require some subjective evaluation, and are meant to reflect how much care is being delivered. An emergency department patient with a simple case of indigestion would be classified by the hospital as using few resources, and would be reimbursed by Medicare only $50.

But a patient suffering from a presumed heart attack might require oxygen, be placed on a cardiac monitor and be sent for a CT scan. Those are higher, more expensive services that Medicare would reimburse for $323.

Referring to the story in The Times, Goozner describes the situation with HCA, a hospital chain we recently wrote about after an investigation found that it performed unnecessary cardiac procedures that boosted its profit. Apparently that wasn’t enough bottom-line helper. As Goozner notes, “In 2008, [HCA] introduced a new coding and billing system that over … two years … tripled the share of emergency room visits that received the two highest reimbursement rates paid by Medicare.”

“In other words, almost overnight, people visiting its emergency rooms got a lot sicker.”

Except, of course, they didn’t. They only seemed sicker on paper thanks to upcoding. And it isn’t the first time HCA has indulged in that unsavory practice-in 2000, the company paid $840 million to settle fraud claims for allegedly overcharging Medicare for upcoding pneumonia patients.

Goozner says that HCA is hardly alone; during the two years tracked by The Times, the percentage of emergency room patients receiving Medicare’s top two billing codes jumped from 58 percent to 74 percent.

It appears to be typical in the U.S. “The system,” Goozner says, “creates a powerful incentive for providers, especially those that operate as for-profit businesses, to shift patients into those sicker categories.” It’s a perversity of the fee-for-service model that’s undermining the ability to control health-care costs in the U.S.

The “diagnostic related group” (DRG) system for reimbursement was introduced more than 30 years ago. Between 1989 and 1996, according to a Dartmouth University study, the share of pneumonia and respiratory infections assigned the most serious DRGs increased 10 percentage points at nonprofit hospitals and 23 percentage points at for-profit hospitals.

In 2010, a Health and Human Services (HHS) report concluded that elderly patients requiring extensive rehabilitation therapy in skilled nursing facilities increased from 17 to 28 percent of that population between 2006 and 2008. But the age and diagnoses of the patients when they were admitted to the facilities hadn’t changed. That’s upcoding.

And according to the HHS study, for-profit nursing facilities were far more likely to recommend more extensive services. Thirty-two percent of patients at those facilities were given “ultra high therapy,” compared with 18 percent at nonprofits and 13 percent at government-owned skilled nursing facilities.

Medicare Advantage is the federal Medicare program that provides coverage via the private insurance market. As Goozner writes, “When President George W. Bush in 2003 announced that payments for beneficiaries in Medicare Advantage plans would be adjusted to reflect their medical conditions, the reported health status of those in the plans declined sharply over the next 12 months.”

And the “risk scores” for people in Medicare Advantage plans rose much faster over the next two years than people covered by more traditional Medicare.

As long as the predominant health-care business model is “the sicker they are, the richer we get,” the system will be gamed and costs will rise.

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